Operations Review

Superdrug operates over 780 stores in the UK and Ireland.

24 CK Hutchison Holdings Limited Retail

Czech Republic Germany Poland The Netherlands Lithuania Belgium Latvia Thailand United Kingdom Russia Mainland China Ireland Hong Kong Taiwan South Korea

Malaysia Turkey Singapore Ukraine Macau Luxembourg Albania The Philippines Hungary Indonesia

2016 Annual Report 25 Operations Review – Retail

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1. In Europe, ICI PARIS XL receives overwhelming response to the launch of a new line of high performance cosmetics brand.

2. China store number exceeds 2,900.

26 CK Hutchison Holdings Limited 3

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3. Savers in the UK achieves 10th on The Sunday Times 30 Best Big Companies to Work For 2017, and it is also the top placed retailer in the UK on the ranking.

4. opens its first Green Store in Tilburg and has received an A++++ energy label, the highest rating achievable.

5. Watsons bébé, a new concept store in Hong Kong for babies and new parents, offers a wide selection of maternal and baby products.

2016 Annual Report 27 Operations Review – Retail

he retail division consists of the A S Watson (“ASW”) group of companies, the largest health and beauty retailer in TAsia and Europe in terms of store numbers. Group Performance

ASW operated 13 retail brands with 13,331 stores in 25 markets worldwide in 2016, providing high quality personal care, health and beauty products; food and fine wines; as well as consumer electronics and electrical appliances. ASW also manufactures and distributes bottled water and other beverages in Hong Kong and the Mainland.

2016 2015 Change in HK$ millions HK$ millions Change Local Currency

Total Revenue 151,502 151,903 – +3%

EBITDA 14,567 14,838 -2% +3%

EBIT 12,059 12,328 -2% +3%

Total Store Numbers 13,331 12,400 +8%

Total reported revenue of HK$151,502 million was flat compared to last year. In local currencies, revenue increased by 3%, driven by an 8% increase in store numbers, primarily in Health and Beauty China and Asia, partly offset by a negative 0.8% comparable stores sales growth which was impacted by comparable stores sales decline in China and Hong Kong offset by positive comparable stores sales growth in Health and Beauty Europe and Asia.

Total Revenue by Subdivision

HK$ millions 157,397 150,000 149,147 151,903 151,502 14% 14% 138,519 21,713 20,914 24% 20% 120,000 22,014 23,814 14% 16% 90,000 9% 8% 60,045 61,584 60,000

12,157 40% 41% 30,000 13,076 2015 2016 35,974 32,114 HK$151,903 million HK$151,502 million 0 2012 2013 2014 2015 2016 Health & Beauty China Health & Beauty Asia Health & Beauty Health & Beauty Other Retail Western Europe Eastern Europe

28 CK Hutchison Holdings Limited 2016 2015 Change in Total Revenue HK$ millions HK$ millions Change Local Currency

Health & Beauty China 20,914 21,713 -4% +2%

Health & Beauty Asia (1) 23,814 22,014 +8% +11%

Health & Beauty China & Asia Subtotal 44,728 43,727 +2% +6%

Health & Beauty Western Europe 61,584 60,045 +3% +7%

Health & Beauty Eastern Europe (1) 13,076 12,157 +8% +13%

Health & Beauty Europe Subtotal 74,660 72,202 +3% +8%

Health & Beauty Subtotal 119,388 115,929 +3% +8%

Other Retail (2) 32,114 35,974 -11% -10%

Total Retail 151,502 151,903 – +3%

Comparable Stores Sales Growth (%) (3) 2016 2015

Health & Beauty China -10.1% -5.1%

Health & Beauty Asia (1) +1.9% +1.5%

Health & Beauty China & Asia Subtotal -4.0% -1.7%

Health & Beauty Western Europe +3.7% +4.0%

Health & Beauty Eastern Europe (1) +4.6% +5.3%

Health & Beauty Europe Subtotal +3.8% +4.2%

Health & Beauty Subtotal +1.0% +2.2%

Other Retail (2) -8.2% +0.4%

Total Retail -0.8% +1.9%

Note 1: Watsons Turkey had been reclassified to Health & Beauty Asia from Health & Beauty Eastern Europe. Note 2: Other Retail includes PARKnSHOP, Fortress, Watson’s Wine and manufacturing operations for water and beverage businesses. Note 3: Comparable stores sales growth represents the percentage change in revenue contributed by stores which, as at the first day of the relevant financial year (a) have been operating for over 12 months and (b) have not undergone major resizing within the previous 12 months.

2016 Annual Report 29 Operations Review – Retail

Group Performance (continued)

Total Retail Store Numbers by Subdivision

Stores 14,000 13,331 4% 3% 12,400 12,000 20% 22% 11,435 2,929 16% 16% 10,581 2,483 10,000 9,742 2,361 2,603 8,000 19% 6,000 20% 5,056 5,190 4,000 41% 39%

2,000 2015 2016 2,006 2,138 Total Stores: 12,400 Total Stores: 13,331 0 494 471 2012 2013 2014 2015 2016 Health & Beauty China Health & Beauty Asia Health & Beauty Health & Beauty Other Retail Western Europe Eastern Europe

Total Net Additions of Retail Stores by Subdivision

Stores 1,287 1,267 1,323 1,200 1,145 1,115 -1% -2% 14% 14% 1,000 965 931 898 854 839 41% 800 395 446 14% 48% 600 19%

263 400 242 188 200 134 26% 27% 0 137 132 -18 -23 2015 2016 Total Net Additions: 965 Total Net Additions: 931 2012 2013 2014 2015 2016 Health & Beauty China Health & Beauty Asia Health & Beauty Health & Beauty Other Retail Gross Additions of Stores Western Europe Eastern Europe

Store Numbers 2016 2015 Change

Health & Beauty China 2,929 2,483 +18%

Health & Beauty Asia (4) 2,603 2,361 +10%

Health & Beauty China & Asia Subtotal 5,532 4,844 +14%

Health & Beauty Western Europe 5,190 5,056 +3%

Health & Beauty Eastern Europe (4) 2,138 2,006 +7%

Health & Beauty Europe Subtotal 7,328 7,062 +4%

Health & Beauty Subtotal 12,860 11,906 +8%

Other Retail (5) 471 494 -5%

Total Retail 13,331 12,400 +8%

Note 4: Watsons Turkey had been reclassified to Health & Beauty Asia from Health & Beauty Eastern Europe. Note 5: Other Retail includes PARKnSHOP, Fortress, Watson’s Wine and manufacturing operations for water and beverage businesses.

30 CK Hutchison Holdings Limited EBITDA and EBIT were HK$14,567 million and HK$12,059 million respectively, both 2% lower than last year due to adverse foreign currency translation impact. In local currencies, revenue, EBITDA and EBIT all increased by 3%, reflecting strong growth in the Health and Beauty segment, partly offset by a decline in Other Retail.

EBITDA by Subdivision

HK$ millions 16,000 15,549 14,838 14,567 8% 5% 14,000 14,158 13% 11% 12,779 32% 31% 12,000 4,756 4,556

10,000 1,936 2,009 8,000

6,000 5,277 5,372 36% 13% 37% 14% 4,000

2,000 1,724 1,869 2015 2016 HK$14,838 million HK$14,567 million 0 1,145 761 2012 2013 2014 2015 2016

Health & Beauty China Health & Beauty Asia Health & Beauty Health & Beauty Other Retail Gain on Disposal of Airport Western Europe Eastern Europe Concession Operation

2016 2015 Change in EBITDA HK$ millions HK$ millions Change Local Currency

Health & Beauty China 4,556 4,756 -4% +1%

Health & Beauty Asia (6) 2,009 1,936 +4% +8%

Health & Beauty China & Asia Subtotal 6,565 6,692 -2% +3%

Health & Beauty Western Europe 5,372 5,277 +2% +8%

Health & Beauty Eastern Europe (6) 1,869 1,724 +8% +14%

Health & Beauty Europe Subtotal 7,241 7,001 +3% +9%

Health & Beauty Subtotal 13,806 13,693 +1% +6%

Other Retail (7) 761 1,145 -34% -34%

Total Retail 14,567 14,838 -2% +3%

Note 6: Watsons Turkey had been reclassified to Health & Beauty Asia from Health & Beauty Eastern Europe. Note 7: Other Retail includes PARKnSHOP, Fortress, Watson’s Wine and manufacturing operations for water and beverage businesses.

The overall health and beauty subdivision, which represented 95% of the division’s EBITDA, continued to deliver strong performances in 2016 under the current challenging market conditions. EBITDA growth of this subdivision was 6% in local currencies with the European operations supporting the growth, in particular, UK, Benelux and Rossmann. The health and beauty subdivision continued to expand its portfolio with 954 net addition of stores. This strong performance was also supported by high quality new store openings with an average new store cash payback period of 10 months. The average capex per new store for the overall health and beauty subdivision was HK$0.9 million.

2016 Annual Report 31 Operations Review – Retail

Segment Performance Health and Beauty China

2016 2015 Change in HK$ millions HK$ millions Change Local Currency

Total Revenue 20,914 21,713 -4% +2% EBITDA 4,556 4,756 -4% +1% EBITDA Margin % 22% 22% EBIT 4,055 4,279 -5% – EBIT Margin % 19% 20% Total Store Numbers 2,929 2,483 +18% Comparable Stores Sales Growth (%) -10.1% -5.1%

The Watsons business continued to be the leading health and beauty retail chain in the Mainland. In reported currency, Watsons was negatively impacted by a 5% RMB depreciation. Despite a negative 10.1% comparable stores sales growth, the 18% increase in store numbers and good cost control resulted in EBITDA growth of 1%, while EBIT remained stable in local currency. It reported the same EBITDA margin of 22% in 2016 compared to last year. Health and Beauty China increased its total number of stores by 446 during the year with an average new store cash payback period of 9 months and had more than 2,900 stores operating in 430 cities in the Mainland as at year end. Stores in Tiers 2 and 3 cities such as Chengdu, Wuhan, Hangzhou and Zhengzhou achieved an even shorter payback period.

In 2017, Watsons China will continue to focus on developing cities in Tiers 2 and 3, as well as implement strategic programs which focus on revitalising the mature stores through renovation, store segmentation and cost control measures.

Health and Beauty Asia

2016 2015 Change in HK$ millions HK$ millions Change Local Currency

Total Revenue 23,814 22,014 +8% +11% EBITDA 2,009 1,936 +4% +8% EBITDA Margin % 8% 9% EBIT 1,643 1,601 +3% +7% EBIT Margin % 7% 7% Total Store Numbers 2,603 2,361 +10% Comparable Stores Sales Growth (%) +1.9% +1.5%

The Watsons business is the leading health and beauty retail chain in Asia with strong brand name recognition and extensive geographical coverage. The majority of the businesses performed well in the region, except for Watsons Hong Kong, which was affected by cost inflation and the lower tourist arrivals in Hong Kong.

Health and Beauty Asia increased its total number of stores by 242 during the year achieving an average new store cash payback period of 13 months. The subdivision had more than 2,600 stores operating in 10 markets in 2016. Health and Beauty Asia (+10%) Number of Retail Stores by Market

5% 10% 5% 9% 9% 10%

20% 22% 19% 20%

4% 4%

16% 16% 15% 16%

2015 2016 Total stores: 2,361 Total stores: 2,603

Hong Kong & Macau Taiwan Singapore Malaysia Thailand 32 CK Hutchison Holdings Limited The Philippines Turkey Other Asian Countries Health and Beauty Western Europe

2016 2015 Change in HK$ millions HK$ millions Change Local Currency

Total Revenue 61,584 60,045 +3% +7% EBITDA 5,372 5,277 +2% +8% EBITDA Margin % 9% 9% EBIT 4,428 4,300 +3% +10% EBIT Margin % 7% 7% Total Store Numbers 5,190 5,056 +3% Comparable Stores Sales Growth (%) +3.7% +4.0%

Despite the depreciation in most of European currencies, the health and beauty businesses in Western Europe continued to report growth in both reported and local currencies during the year. Health and Beauty UK, in particular, made significant progress in its performance with an impressive comparable stores sales growth of 6.9% in 2016 and was a major growth contributor to the division.

Health and Beauty Western Europe added 134 stores and operated more than 5,100 stores in 2016. The average new store cash payback period of this subdivision was 10 months.

Health and Beauty Western Europe (+3%) Number of Retail Stores by Market

28% 28% 40% 41%

32% 31%

2015 2016 Total stores: 5,056 Total stores: 5,190

Germany Benelux Countries United Kingdom and Ireland

2016 Annual Report 33 Operations Review – Retail

Segment Performance (continued)

Health and Beauty Eastern Europe

2016 2015 Change in HK$ millions HK$ millions Change Local Currency

Total Revenue 13,076 12,157 +8% +13% EBITDA 1,869 1,724 +8% +14% EBITDA Margin % 14% 14% EBIT 1,623 1,482 +10% +15% EBIT Margin % 12% 12% Total Store Numbers 2,138 2,006 +7% Comparable Stores Sales Growth (%) +4.6% +5.3%

Despite the currency depreciation, in particular Polish Zloty and Ukrainian Hryvnia, the health and beauty businesses in Eastern Europe continued to report growth in both reported and local currencies during the year. In local currencies, the 14% and 15% growth in EBITDA and EBIT respectively was mainly from the strong sales and margin performances of the Rossmann joint venture in Poland.

Health and Beauty Eastern Europe added 132 stores and operated more than 2,100 stores in 7 markets in 2016.

Health and Beauty Eastern Europe (+7%) Number of Retail Stores by Market

16% 16%

19% 55% 20% 55%

10% 9%

2015 2016 Total stores: 2,006 Total stores: 2,138

Poland Hungary Ukraine Other Eastern European Countries

34 CK Hutchison Holdings Limited Other Retail

2016 2015 Change in HK$ millions HK$ millions Change Local Currency

Total Revenue 32,114 35,974 -11% -10% EBITDA 761 1,145 -34% -34% EBITDA Margin % 2% 3% EBIT 311 665 -53% -54% EBIT Margin % 1% 2% Total Store Numbers 471 494 -5% Comparable Stores Sales Growth (%) -8.2% +0.4%

Other Retail subdivision, which only represented 5% of the division’s EBITDA, reported lower total revenue, EBITDA and EBIT which declined by 11%, 34% and 53% respectively, mainly due to the lower contributions from the Hong Kong operations, which were affected by cost inflation and declining tourist footfall and Fortress, also adversely impacted by significantly lower sales of mobile handsets. Other Retail currently operates over 470 retail stores in 3 markets, as well as manufactures and distributes bottled water and other beverages in Hong Kong and the Mainland.

Other Retail (-5%) Number of Retail Stores by Segment

7% 7%

19% 20%

74% 73%

2015 2016 Total stores: 494 Total stores: 471

Fast-moving Consumer Goods Consumer Electronics Wine Retailing

2016 Annual Report 35